Global Economics

EU Chamber Warns on Chinese Overcapacity

Worried that industrial overcapacity is hurting global markets, the EU Chamber of Commerce wants China to boost domestic demand and strengthen the yuan

Chinese industrial overcapacity is causing severe damage to its domestic growth and the global economy according to a new report by the EU Chamber of Commerce in China on Thursday (26 November).

Already a problem before the crisis, the country's 4 trillion yuan (€400 bn) stimulus package is worsening Chinese overcapacity says the document, with important ramifications for Europe.

The steel, aluminum, cement, chemical, refining and wind-power equipment industries were singled out as amongst the worst offenders.

Domestic consequences include falling profits and failures to meet loan obligations. But overcapacity also generates trade tensions as producers offload their surplus production overseas at marked-down prices, warns the report.

The EU has already initiated a string of anti-dumping cases against China this year alone, greatly adding to frictions between the two sides.

"The Chinese stimulus package has poured credit into increasingly questionable projects," say the report's authors. "The global impact already can be felt in the form of growing trade tensions."

To correct the imbalance, the Chamber argues China must shift from investment and export lead growth to greater domestic consumption and development of services.

Weak yuan

Another issue of concern to European businesses is China's weak currency, with EU finance chiefs set to discuss the issue in China this weekend.

On Wednesday, European businesses called on the European trio to push for a stronger yuan, arguing that its current weakness against the euro is hurting European exports and dampening the region's economy.

The Brussels-based business umbrella group, Business Europe, called on the finance officials to hold an "open and frank" debate on the subject.